Introduction

The market rebound from tech driven selling. The move confirms support but near-term outlook remains cloudy. Today's action was driven in part by a clarification of yesterday's comments from Mario Draghi as well as speculative buying in the banking sector. Yesterday, Mario Draghi appeared to signal that policy would begin to change course in the near-term. Today those statements were clarified to the point the market believe easy money policy will continue in the EU for the foreseeable future. On the banking front shares were being scooped up ahead of the release of stress test results and the expectation many banks would be able to substantially increase their distributions.

International markets were mostly lower in today's session. In Asia indices fell roughly -0.5% on uncertainty over the US health care vote and Mario Draghi's comments. In Europe indices were also down but losses were minimal. Mario Draghi's comment had them on edge but today's addendum helped to soothe the stirring beast.

Market Statistics

Futures trading was a bit mixed this morning. The broad market was indicated higher despite weakness in the tech sector. This changed going into the open as all stocks began to rise following the mornings news cycle. The S&P 500 opened with a gain of nearly 8 points and then proceeded to extend that in steady trading. The day's top was hit around 2PM at which time the indices entered a narrow trading range where they remained for the rest of the day.

Economic Calendar

The Economy

Mortgage applications and Pending Home Sales both fell this week as tight inventory curbs activity. Economist at the NAR say there are plenty of buyers but a lack of homes for sale has prices on the rise. Mortgage apps fell -6.2% after rising 0.60% the previous week. Pending home sales fell -0.8% from a downward revision to the previous month. On a year over year basis pending sales are down -1.7% and negative for the second month in a row and the fourth month in the last 10.

The Dollar Index

Mario Draghi killed the dollar bull and today's comments did not help. The Dollar Index fell another -0.40% and is now sitting on long-term support. The indicators are consistent with this move although both MACD and stochastic are showing divergences from the new low. Support is now $96 and likely to be tested in the coming days. A break below this level would be bearish with targets near the 1 year low of $94.15. Looking forward it appears as if the ECB is in fact at a turning point and more likely to begin tightening than add to easing. With this in mind the euro is likely is to stabilize and counter balance any bullishness in the dollar. The Dollar Index may not move below support but I do not see any reason for it to move higher in more than a short-term kind of way.


The Gold Index

Gold prices have held remarkably steady in the face of the dollars massive decline. The spot price hovered around the $1,250 level as risk-on sentiment countered dollar weakness. Where gold goes from here is questionable and likely determined by the next major headline. A move higher has resistance at $1,260 and $1,280, a move lower has support targets at $1,235 and $1,220.

The Gold Miners ETF GDX continues to wind up within it's narrowing trading range. Today's action saw the ETF trade sideways from yesterday's close, at the mid-point of support and resistance and below the long-term moving average. The indicators remains consistent with range bound trading although bias is to the downside. Support is near $22, resistance near $22.95 and getting lower. Without some other catalyst to move it this may come down to time, sooner or later it will exit the triangle.


The Oil Index

Oil prices continued to rebound on a surprise draw in gasoline stocks. The draw led traders to believe in demand was picking up but the move is likely short-lived. This draw is in preparation for the 4th of July weekend which is expected to see record driving, after that the driving season will taper off as always. Crude stockpiles rose by 0.1% versus an expected draw adding to today's bullishness. WTI gained a little more than 1.1% to trade near $44. 75 and looks like it might continue to rise near-term.

The Oil Index gained a full percent to trade at a one week high. The index is rebounding from recently set lows on rising oil prices but the move does not look very strong at this time. The indicators are both pointing lower and trending bearish over the short to long-term so a test of the low is likely. Support may be at the low but it is too soon to tell. Upside target for resistance is 1,120 or lower, downside target is 1,090 or lower.


In The News, Story Stocks and Earnings

The bankers were at the forefront of today's rally as speculative/dividend investors loaded up ahead of the stress tests. The BKX Banking Index gained more than 1.65% on the action and is testing a 3 month high. The indicators are not in support of higher prices at this time but positive results could drive it higher nonetheless. There is the possibility of a buy-the-rumor-sell-the-news response should the news be priced into the market already. All 34 banks passed, the first time since the tests were begun and the increase announcements have already begun to roll in.


Caterpillar gained more than 2% on signs of improving business traffic. Last week the company announced it saw a rise in new equipment orders, this week Credit Suisse says dealer backlogs are growing. This news came along their reiterated outperform rating and $123 price target, a 15% premium to today's market prices. The company is scheduled to report earnings in 4 weeks and may surprise to the upside.


The VIX fell roughly -10% to close move below on an intraday basis and close very near to the 10 level. The move is the largest single day move in nearly 3 weeks and returns the index to near historic lows. The indicators continue to trend consistent with range bound markets and is biased to the downside. Near-term indications are bearish so the fear gauge may test recent lows.


The Indices

The indices rebound from yesterday's lows in a move that in most cases confirms support at a key level. Today's leader is the Dow Jones Transportation Average with a gain slightly more than 1.51%. The index created a large green candle moving up from support and approaching the all-time high. The indicators are firing a weak buy signal but is confirmed by both. A move higher would face resistance at the all-time high, a break above which would be trend following and bullish.


The NASDAQ Composite made the next largest gain, nearly 1.50%, and recovered much of yesterday's losses. Today's action created a medium sized green candle confirming support at the short-term moving average although the indicators do not agree. Stochastic is pointing higher but is giving a very weak signal while momentum continues to weaken. A continuation of the bounce faces resistance at 6,300 and 6,350, a break below the moving average may find support near 6,000.


The S&P 500 comes in third today with a gain just shy of 1.0%. The broad market index created a medium sized green candle confirming support at the short-term moving average and capped at the bottom of the long-term up trend line. It looks like prices are bouncing higher in line with the trend but need to move above the trend line to confirm. The indicators are both showing weakness and pointing lower so it looks like a move significantly higher is not coming just yet. Upside resistance is the bottom of the trend line near 2,440 and rising, a fall from this level would be bearish.


The Dow Jones Industrial Average made the smallest move today but a move higher it made. The blue chips created a small green bodied candle moving up from yesterday's low and touching resistance at the long-term up trend line. The index appears to be moving up from a low in line with the trend but this move looks weak. The indicators are pointing lower and showing only the faintest signs of support so not a signal to trade on. A move higher would be bullish but also face resistance at the all-time high. A break above that level would be bullish. A move lower would find first support near 21,230 and the short-term moving average.


Frothy market action continues as sector rotation wears on. News and one-off events are moving the market within near-term ranges while we wait on the upcoming earnings cycle to ramp up. Expectations remain high despite falling oil prices so there is a good chance the market will hold near current levels until then. Between then and now volatility may persist. I remain cautious for the near-term and bullish for the long, waiting on earnings and the next good market signal.

Until then, remember the trend!

Thomas Hughes


 

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